As SolarCity (SCTY) Crashes, Is Elon Musk Overrated?

Less than a week after another disappointing earnings report from Tesla Motors, Inc. TSLA , there was more bad news for Elon Musk on Tuesday. SolarCity Corp. SCTY , for which Musk currently serves as chairman, reported a wider-than-expected Q1 loss , sending shares plummeting nearly 25%.

With shares of Tesla down nearly 7% after also missing earnings expectations, Musk's net worth has certainly taken a hit over the past week. Of course, we don't really feel bad for the still-enormous fortune of the billionaire founder of Tesla, SpaceX, and PayPal PYPL , but investors are beginning to ask questions about the true reality of the perceived "Musk effect."

Let's get one thing straight: Elon Musk is a genius. The man has been a revolutionary force in the advancement of our society, and his lofty dreams about the capability of humanity is inspirational. Nevertheless, it is becoming clearer that Musk's backing does not automatically make a company a sound investment.

The Tesla Problem

Perhaps the most troubling issue for Musk is the persisting difficulties of Tesla. Musk himself has been the loudest spokesperson of Tesla and electric vehicles in general, even going so far as to say that the company will be worth as much as Apple AAPL is today by 2025. Now, many critics are starting to argue that Musk's rhetoric artificially boosted Tesla's value for years.

(Also Read:4 of Elon Musk's Boldest Predictions)

The problem with Tesla is that the company doesn't make enough money from selling cars. Many things contribute to the lack of sales, one of which is the ridiculously high price-tag that comes with shopping for a Tesla. Have no fear! Elon Musk and the sub-$30,000 Model 3 are coming to the rescue!

Except it's really not the simple, and the Model 3 is itself a great example of how powerful Musk's words can be. Investors have been practically drooling over the Model 3, thinking that Tesla had finally found the affordable vehicle it needed to appeal to the common person and boost sales. In reality, Tesla won't be beginning production on the Model 3 until the end of 2017 . By then, the federal tax credit that makes the car less than the $30k price it has been marketed at will likely be long gone .

Overvaluing SolarCity

What investors should be realizing now is that there should no longer be a premium on SolarCity just because of the Musk connection. While the company's latest report helps illustrate the point, we really got our first hint at this when it was announced that Tesla's new solar-battery just didn't work well with rooftop solar panels.

Despite Musk serving as chairman, SolarCity officially decided not to use the new Tesla batteries. At this point, the possible relationship between SolarCity and Tesla, once viewed as one of the best things going for SCTY stock, seems further apart than ever before.

How Much For An Idea?

What is clearly undeniable is that Musk is an incredible "ideas guy." His not-yet-public space exploration venture, SpaceX, is currently revolutionizing manned space travel, designing rockets that can safely return to Earth and be used again. Check out the SpaceX's Falcon 9 landing, the first time this was ever accomplished in human history:

Of course, SpaceX isn't necessarily generating any profits yet. However, Musk believes the company will send a man to Mars within the next 10-20 years, and if SpaceX can manage to reuse its launch gear, it will change the space exploration world forever and put the company at the helm of the consumer space travel business.

Another grandiose idea of Musk's came in the form of a challenge to engineers back in 2013 when he dared someone to realize his dream of a high-speed transportation system that utilized pressurized tubes. One company, Hyperloop Technologies, says it is now close to demonstrating that technology, and will be showing off its progress at a live event , sponsored by SpaceX, this week.

Bottom Line

SolarCity is struggling. Tesla is struggling. Elon Musk is not the King Midas of making companies perfect. Instead, like every other publicly traded business, these Musk-owned brands will need to focus on a way to increase profits and deliver value to shareholders. Musk's magic can't do everything anymore.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days . Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

TESLA MOTORS (TSLA): Free Stock Analysis Report

APPLE INC (AAPL): Free Stock Analysis Report

SOLARCITY CORP (SCTY): Free Stock Analysis Report

PAYPAL HOLDINGS (PYPL): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Markets Videos


Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at

Learn More